By Sybilla Gross
The coronavirus is forcing a rethink on almost everything in China, even forcing the country to prepare steps to adjust to a slower rate of economic growth. Officials are evaluating whether to soften the economic-growth target for 2020, while state-owned liquefied natural gas importers are considering declaring themselves unable to fulfill some obligations on cargo deliveries — known as force majeure — according to people familiar with the matter. And authorities in Beijing are hoping the U.S. will agree to some flexibility on pledges in their phase-one trade deal, people close to the situation said. Two-thirds of the Chinese economy will remain closed this week as several provinces took the extraordinary step of extending the Lunar New Year holiday to help curb the spread of the disease that’s claimed more than 360 lives, with confirmed cases reaching almost 17,400. Here’s a wrap of the considerations. Meanwhile, pressure is growing on Asia to cut rates to curb the economic fallout from the virus.
Asian stocks looked set to open mixed Tuesday after modest U.S. gains as investors continued to weigh efforts to contain the coronavirus. Commodities remained under pressure, with oil sinking about 3%, and the dollar rose. Futures indicated a muted start in Tokyo and Sydney, while Hong Kong contracts gained. The S&P 500 Index closed higher as China added stimulus in an effort to shore up its economy and American manufacturing data topped estimates. Treasuries dipped, though pared much of their losses toward the end of the session, while the yen weakened while the yuan remained above the key 7 per dollar level. Elsewhere, copper dropped for a 14th straight day. Oil fell below $50 a barrel after Chinese consumption was said to plunge by 20% amid efforts to control the spread of coronavirus.
It’ll be a while before China spends billions on U.S. farm goods as part of Donald Trump’s trade deal. There’s been skepticism about China’s ability to buy as much as was promised — $50 billion — ever since the pact was signed in mid-January. And while the head of Archer-Daniels-Midland, one of the world’s top agricultural commodity traders, said the Asian nation will make good on its promises, most of its purchases may come only in the second half of 2020. What’s more, Chinese officials are now said to be hoping the U.S. will agree to some flexibility on their pledges as the spread of deadly coronavirus threatens to slow domestic growth, though the U.S. says it hasn’t received any such request. “I think the problem is serious and China will most likely avoid any big rush of commodity buying because of the trade deal for now,” said Michael McDougall, a managing director at Paragon Global Markets in New York. That could delay any boost for farmers, a core voting bloc for President Trump as he prepares to seek re-election later this year.
Fires, scandal and slowdown. Australia’s Prime Minister Scott Morrison is facing a triple threat heading into the first parliamentary sitting of 2020 — and it’s all going wrong. An unprecedented wildfire season that’s burnt out an area of land almost the size of England and shrouded major cities such as Sydney and Melbourne in toxic smoke has increased pressure on Morrison to abandon his pro-coal agenda. His government is walking back promises on a budget surplus as the fires and coronavirus threaten economic growth. And a member of his Cabinet has just resigned over a breach of ministerial standards. Voters are taking notice. The government’s 4 percentage-point opinion poll lead over the main opposition Labor party two months ago has been reversed, while Morrison’s personal approval rating has plunged 8 points to 37%. “Morrison has suffered one of the steepest declines in political fortunes in recent Australian history and his government colleagues will be worried that his reputation is already damaged beyond repair,” according to Paul Williams, a political analyst at Griffith University in Brisbane.
Tesla was up the most since 2013, rallying for a fifth day Monday and adding more than $100 per share as a torrent of good news further boosted investor sentiment. The stock rose as much as 21% to $786.14, its highest price ever. Where did the jolt come from? Earlier, Panasonic, which makes batteries for Tesla, said the business turned profitable in the quarter ended Dec. 31, with Panasonic Chief Financial Officer Hirokazu Umeda telling reporters in Tokyo on Monday that the rapid increase in Tesla’s output helped push that business into the black. Another boost came from Argus analyst Bill Selesky, who raised his price target on Tesla to $808 from $556, reflecting revenue growth from the legacy Model S and Model X cars, as well as strong demand for the new Model 3. Tesla shares have now risen 79% in just 2020 alone, and have tripled in value since third-quarter results were reported in mid-October.